Road rage and bond frustrations

By Charles Sampson

Contractors Bonding

I  will happily admit that I get frustrated living in Auckland. It is impossible not to if you have to drive at all. And this frustration stems from a combination of bad driving and bad roads.

Having spent part of my working life in Australia and more recently in California, I believe that we Aucklanders are the worst drivers in the developed world – fullstop.  And the anger. Where does that come from? In this city stop signs and red lights are now a suggestion rather than a rule, and the once friendly wave between drivers is now a one finger salute.

If you want to change lanes on the motorway here the usual method is to signal a change in the opposite direction that you want to go, wait while everyone around you moves to block your path, and then slip into the lane that you actually wanted. It  works but you still get that one fingered salute from everyone.

I’m really amazed that a traffic system could be so incredibly bad for such a relatively small city, but that’s what you get after decades of neglect. The good news is that the problem is so bad that there has been a serious commitment to roading infrastructure and this should continue for some time, with the hope that by 2020 we begin to experience some relief from the gridlock and drama that is now an everyday event.

But I digress, back to frustration. The point that I really wish to raise is the question of retentions.

As a bond underwriter we write bonds for these projects for a number of authorities, however many councils will not allow bonds for this purpose.

I can accept that there is a possibility of problems arising after completion of a contract, however these will always be fixed by the contractor involved if he wants to pick up future contracts with that council.

From time to time a contractor will go out of business, but this eventuality can easily be covered by a bond rather than the holding back of cash.

For many contractors retentions are a major cash flow challenge. Having funds retained for up to two years is bound to make your eyes water in these difficult times. For councils, of course, it is an excellent cash management exercise, and despite protestations from them that this is an essential risk management requirement, the reality is that it is basically an unfair system for contractors.

But what can be done about it?

For our part we regularly talk to councils about using bonds here, usually all we get is that thousand yard stare from the individual involved. It is accepted that few council employees are willing to make decisions on their own. People don’t join councils to act this way, but this is a matter that does need to be addressed.

Lets be quite clear here. For us it’s a simple extension of what we do day-in-day-out with councils and the like. We make money from it, but the small fee for a bond is nothing compared to the retention held.

Certainly some smaller contractors suffer enormous problems with this issue, and, given the economic environment that now exists, the holding back of funds is only going to make things much worse for many.